Concerns became reality. LG Electronics decided to officially withdraw from the smartphone business on the 5th. Since the days of feature phones, the smartphone industry has contributed greatly to the export economy as an axis of the Korean mobile industry. It is a growth industry that has led the ecosystem of Korea’s advanced IT industry as a national brand along with semiconductors. However, the Korean smartphone industry is now attracted to Samsung Electronics, not a’two-headed wagon’. This magazine decided to continue to examine the market storm in the future following the withdrawal of the LG phone business. [편집자주]
LG Electronics’ smartphone disappears into history after 26 years. As LG Electronics left the smartphone business, Samsung Electronics remained the only smartphone maker among domestic companies. The global smartphone landscape is now reorganized into a competitive landscape between Samsung Electronics, Apple, and Chinese companies.
■ Why did LG have to quit the smartphone business?
In the industry, LG Electronics’ withdrawal of the smartphone business was only a question of when, but it was a reaction that was predicted. In fact, it has been the industry’s greatest concern so far as to when LG Electronics withdraws from the smartphone business, rather than Samsung Electronics holding the No. 1 position in the global mobile phone market.
In the end, LG Electronics, which recorded a cumulative operating deficit of about 5 trillion won for 23 consecutive quarters after the second quarter of 2015, raised its hand first. It means that a large ship with cumulative sales of 56 trillion won has stopped over the past five years.
“The LG smartphone business becomes important when the smartphone is connected to IoT and future businesses, and it has been forcibly pulled so far because of the fear that future business competitiveness will decrease if this business is withdrawn,” said Tae-yoon Kim, team leader of the Korea Economic Research Institute’s Industrial Strategy Team. There were many predictions that it was difficult,” he said. “It seems that low-end brands such as China’s Xiaomi have gained some market share at mid- to low-end prices, but it seems that low-end brands such as China’s Xiaomi expanded their technology and pursued the high-end, and they did not seem to withstand the withdrawal of the LG phone business.
Another industry official said, “I think LG Electronics’ smartphone has no own OS and no chipset.” As a result of trying to follow the premium strategy unreasonably due to the nature of a large company, it seems that the vicious cycle of a large-scale deficit accumulates and the decrease in competitiveness that occurs there, and it seems that the business has ended.”
It seems that LG Electronics has decided that it is impossible to keep the business amid the long-standing deficit structure.
LG Electronics announced the withdrawal of the smartphone business and said, “In the premium mobile phone market, LG Electronics has not been able to achieve results due to inadequate response while the two-gang system has been strengthened and major competitors are focusing on the entry-level mobile phone market, and price competition has intensified.” “In this market situation, we plan to improve our business structure by focusing our capabilities on core businesses that can improve efficiency of internal resources and secure competitive advantage through selection and concentration, and at the same time accelerate the preparation of new businesses for future growth.” Said.
LG Electronics’ choice and concentration is to organize the businesses that had forgotten about 1 trillion won each year, and to focus on areas that do better, such as home appliances and TVs, and future businesses such as robots and electronics.
■ Korean smartphone industry without LG phone…Will Samsung be safe?
LG Electronics occupies 9th place in the global smartphone market with a market share of about 2%. Last year’s total shipments amounted to 24.7 million units. In the global market, the market share is insignificant, but as it occupied the third largest market share in North America and the domestic market, it is expected that there will be a change in the market share of each manufacturer in the local market.
Overseas, Chinese smartphones are expected to replace LG Electronics’ vacancy. LG Electronics’ smartphones were mainly sold in North and South America. About 60% of the global sales of LG smartphones come from North America, and about 20% come from South America. The market share in North America was about 10%, ranking third after Apple and Samsung Electronics, and fourth in Latin America after Samsung, Motorola, and Xiaomi.
“In the North American market, Motorola, which has a product lineup similar to LG, may benefit,” said Researcher Lim Soo-jeong of Counterpoint Research. “In the South American market, Chinese brands such as Xiaomi and Oppo are also expected to benefit,” he predicted.
LG Electronics has occupied 13% of the domestic smartphone market after Samsung Electronics and Apple. As of last year, the domestic smartphone market stood at 17 million units per year. When the LG smartphone disappears, Samsung Electronics’ share in the domestic smartphone market is expected to increase. Samsung Electronics currently occupies over 70% of its market share in Korea, because if LG phones disappear from the option, Samsung phones are likely to emerge as an alternative.
Although mid- and low-priced Chinese smartphones such as Xiaomi are being released in Korea, it is analyzed that domestic users will choose smartphones from Samsung Electronics with a variety of portfolios, rather than choosing Chinese products with low brand reliability.
■ Implications of LG phone withdrawal to Samsung Electronics
With the withdrawal of the LG smartphone business, Samsung Electronics is expected to continue a lonely fight to secure the world’s No. 1 position between Apple and Chinese smartphone makers.
If Chinese big three companies such as Xiaomi and Oppo invade the LG phone market, it is highly likely that the time to stay as the world’s No. 1 mobile phone maker, which is at stake for Samsung Electronics, will be shorter and shorter. Currently, Samsung Electronics ranks first on an annual basis, but its share gap with Apple is only 2%, which is turning up and down on a quarterly basis.
According to market research firm Strategy Analytics (SA), in the global smartphone market in February this year, Samsung Electronics sold 24 million units, ranking first with a 23.1% market share. However, Apple sold 23 million units, ranking second (22.2%). The next is Xiaomi (11.5%), Vivo (10.6%), and Oppo (8.5%).
Just as LG Electronics has been pushed back to Chinese smartphones in the mid- to low-end market and Apple and Samsung in the premium phone market, there are concerns that Samsung Electronics may be pushed to Apple in the premium smartphone market and Chinese smartphones in the mid- to low-end market. In particular, LG phones acted as a shield in keeping Samsung phones out of the pursuit of Chinese phones, but it is observed that now it is inevitable to face an all-out war between Samsung and Chinese companies.
Tae-yoon Kim, head of the Korea Economic Research Institute’s Industrial Strategy Team, said, “From the perspective of Samsung Electronics, we competed with LG, a Korean company, under the title of Korea, but now we are in a’nut-cracker’ between Apple and several Chinese companies. “At the high-end level, Apple’s iPhone royalty and service market connections have not yet been followed, and the lower Chinese companies are following in terms of price and technology. “Since LG has disappeared, Samsung’s low-cost phones are likely to be threatened right away, and they are likely to have a lonely fight,” he said.
“Samsung has a diverse portfolio from high-end to low-end brands, and low-end brands are likely to be engulfed by Chinese phones, but in order to enter emerging markets such as India, you have to bring low-priced phones. “In such a situation, Samsung should look for a service business related to Apple, while maintaining competitiveness in the manufacturing industry.”
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Apple accounts for 20% of its total sales in the service sector. In the fourth quarter of last year, Apple’s service sales amounted to $15.66 billion (about 17.67 trillion won), which is close to the total sales of Samsung Electronics’ IM division (22.34 trillion won) in the fourth quarter of last year. With only the service minus the iPhone sales, it is equivalent to the sales of Samsung’s smartphone business as a whole. On the other hand, Samsung Electronics has to lean on smartphone sales with no sales in the service division.
“If products and services converge, we can dominate a much larger market.” I think it’s the key.”